In a pair of wins for drivers in Chicago and Milwaukee, a federal court ruled that taxi owners have no right to block competitors and are not entitled to a bailout. This also marks the first time a federal appellate court has ruled in favor of ride-hailing.

The first case involved Uber and Lyft competing with taxi companies in Chicago, which have long benefited from a government-backed monopoly. As recently as 2013, a medallion to lease or own a Chicago taxi could fetch almost $360,000. But in 2016, a medallion sold for just over $66,000 on average. The slump in medallion transactions has been even starker: 14 medallions were sold last year, down from 91 sales in 2014 and 370 in 2013.

But Judge Richard Posner, writing for a unanimous 7th U.S. Circuit Court of Appeals, found “no merit” to the Association’s demand. “’Property’ does not include a right to be free from competition,” he noted. “A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening.”

Moreover, accepting the taxi-medallion owners’ line of reasoning could have drastic consequences for innovation and consumer choice:

Were the old deemed to have a constitutional right to preclude the entry of the new into the markets of the old, economic progress might grind to a halt. Instead of taxis we might have horse and buggies; instead of the telephone, the telegraph; instead of computers, slide rules. Obsolescence would equal entitlement.

The 7th Circuit’s ruling could further disrupt the taxi industry in Chicago. With medallions historically fetching exorbitant prices, the vast majority of Chicago taxi drivers—77%—have been forced to lease a medallion and work long hours. A high barrier to entry also ossified the industry. The top 2% of medallion owners controlled more than 40% of the city’s roughly 7,000 medallions in 2014, an investigation by The Washington Post found.

In sharp contrast, ride-hailing has been a boon to consumers and drivers. A National Bureau of Economic Research working paper examined nearly 50 million uberX rides in Chicago, Los Angeles, New York, and San Francisco, Uber’s four biggest markets in the U.S. “For each dollar spent by consumers,” researchers found, “about $1.60 of consumer surplus is generated.”

Some of the biggest gains for riders have been in neighborhoods long shunned by taxi drivers. According to Uber, more than half of all uberX rides in Chicago “begin or end in an area deemed by the City as underserved by taxi and public transportation,” while Uber’s operations in those areas have “grown 30 times over the last two years.”

Although data for Uber’s impact on job growth is patchy, a recent study by the Brookings Institution estimates that in the ground transportation sector, the Chicago area added nearly 8,700 jobs in the “gig economy.” That's an increase of almost 50% between 2012 and 2014. By comparison, payroll employment increased by 12%, during that same period.

LONDON, ENGLAND - AUGUST 03: The Uber home page is displayed on an iPhone on August 3, 2016 in London, England. (Photo by Carl Court/Getty Images)

In addition to its decision on Uber in Chicago, the 7th Circuit ruled in favor of Milwaukee, which went even further than Chicago in liberalizing transportation markets. Not only did Brew City allow ride-hailing firms to operate, it also repealed its decades-old cap on taxicab permits. Due to a strict limit and moratorium on new permits implemented in 1992, Milwaukee had only 320 cab permits by 2013. In turn, a permit could cost upwards of $150,000, even more than a house.

After the Institute for Justice secured a court ruling that the cap was unconstitutional, the Milwaukee Common Council first added 100 new permits before scrapping the cap altogether in 2014. In response, some of Milwaukee’s largest taxi companies sued the city. Like in Chicago, they demanded “just compensation,” since their permits were no longer as lucrative as before.

Instead, the 7th Circuit rejected that argument, ruling that the taxi owners’ claim “borders on the absurd.”

“A taxi permit confers only a right to operate a taxicab,” Posner wrote for a unanimous court. “It does not create a right to be an oligopolist, and thus confers no right to exclude others from operating taxis.”

Posner partially relied on a ruling by the 8th Circuit to reach his decision. In that case, the Institute for Justice defended a similar liberalization in Minneapolis from a self-serving lawsuit by incumbent taxi owners. Ten years after Minneapolis deregulated its taxi industry, the number of taxi licenses increased 185%. And the number of cab companies quadrupled.

Together, these court rulings set important precedents which can help nascent entrepreneurs fend off bailout demands by taxi owners across the country.

“In city after city, we are seeing lawsuits like these filed by incumbent businesses that want to freeze the current regulatory environment in amber,” said Anthony Sanders, a senior attorney at the Institute for Justice, which litigated both the Chicago and Milwaukee cases. The rulings by the 7th Circuit, Sanders added, “confirm that there is absolutely no legal barrier to other cities’ joining the rising wave of cities embracing transportation freedom.”

I'm a writer and legislative analyst at the Institute for Justice (IJ), a public interest law firm. As a member of IJ’s Communications team, I regularly write opeds and blog about economic liberty, private property rights, the First Amendment and judicial engagement. On the...

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